Hydromaint Inc. was created in 20×1. Your firm has been working with them since their inception by providing review services each year, as required by their bank. These services have included reviewing the journal entries prepared by the client each year, and making inquiries to the client to understand the methodologies and estimates used. Your firm then proposed adjusting entries to bring the financial statements into compliance with GAAP, and prepared the financial statement footnotes.
When Hydromaint was created they were exclusively providing hydraulic maintenance services. As they have grown they began to carry parts in inventory to expedite their maintenance and repair activities. (Previously they would order parts only when needed.) In 20×4 Hydromaint acquired a 20 percent ownership in PVCO, a supplier of high quality pumps and valves. At that time one of the Hydromaint founders was placed on the board of PVCO.
You have been provided the journal entries for 20×5, and the income statement and balance sheet that was prepared by the client. (Some of the entries are aggregated for simplicity.) Review the financial information provided and prepare a list of questions for the client. These questions should address clarification of methods and estimates to allow you to prepare any adjusting entries and footnotes for 20×5. Your questions will be due by 11pm on Monday, June 8th. .
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